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TMI Blog2016 (1) TMI 74X X X X Extracts X X X X X X X X Extracts X X X X ..... is issue. When the Assessing Officer has not formed any opinion, it cannot be said that there was a change of opinion as found by the CIT(A). - Decided against assessee Disallowance of marketing commission fees paid to overseas parties - Held that:- The claim of the assessee is that the assessee has taken container on lease and used the same for his leasing business. The copies of the agreement entered into between the assessee and M/s ABC Containers Pvt. Ltd. Colombo, for taking containers on lease or the services to be provided by M/s ABC Containers Pvt. Ltd. Colombo, are not furnished either before the lower authorities or before this Tribunal. The CIT(A) confirmed the addition made by the Assessing Officer on the ground that the assessee has not established that the commission paid to non-resident company was for soliciting business outside India. Therefore, it is obvious that in the absence of any material before the lower authorities, the payment of commission to M/s ABC Containers Pvt. Ltd. Colombo was disallowed. This Tribunal is of the considered opinion that giving one more opportunity to the assessee to produce necessary material before the Assessing Officer may not prej ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2% of the gross exempted income. It is not in dispute that Rule 8D is not applicable for the year under consideration, therefore, this Tribunal is of the considered opinion that the CIT(A) has rightly restricted the disallowance to 2% of the exempted income. This Tribunal do not find any infirmity in the order of the CIT(A). - Decided against revenue Disallowance of key man insurance premium paid - CIT(A) deleted the disallowance - Held that:- As rightly contended by the ld. Counsel, the keyman insurance policy is only to protect the company from adverse financial effects in case of unexpected death of Managing Director. But when the assesseecompany knows very well that no claim could be made on the death of the Managing Director, Shri Bijoy Poulose since he was holding more than 51% of the shares in the company, it is not known how the payment of 10 lakhs towards premium is going to protect the assessee-company from adverse financial effects in case of unexpected death of the Managing Director. When the assessee-company is not eligible to make a claim since the keyman insurance policy holder is holding more than 51% of the shares in the company, this Tribunal is of the considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Kingdom, without deduction of tax. The Assessing Officer also found that the assessee has not disclosed the above payment in the return of income. Even the name of the recipient was not disclosed to the Department at the time of original assessment. Therefore, the Assessing Officer reopened the assessment u/s 147 and completed the assessment after giving reasonable opportunity to the assessee. However, on appeal by the assessee, the CIT(A) found that there was a change of opinion, therefore, the reopening of assessment was not valid. The ld. DR further submitted that the Assessing Officer has not taken any opinion in respect of the payment made to M/s Crono Containers Ltd. The claim of depreciation to the extent of ₹ 0.70 crores was found to be not eligible since the assessee was not owner of the container. During the course of original assessment, the assessee did not disclose the nature of these expenses. Since the Assessing Officer has not formed any opinion and the details were also not furnished by the assessee during the course of original assessment, according to the ld. DR, there is no change of opinion as found by the CIT(A). Therefore, the judgment of the Apex Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not contain any such details, the ld. Counsel clarified that the books of account were produced before the Assessing Officer. The ld. Counsel has also clarified that if necessary, the assessee is ready to produce the books of account before this Tribunal also. The ld. Counsel further submitted that if the assessee has not furnished the name of the recipient, how the Assessing Officer was able to refer the name of the recipient while recording reasons for reopening the assessment. The very fact that the Assessing Officer mentioned the name of the recipient while recording reasons for reopening the assessment shows that the assessee has furnished the name of the recipient before the Assessing Officer in the original assessment. The ld. Counsel further submitted that the CIT(A) has not decided the issue on merit. If for any reason this Tribunal came to the conclusion that the reopening was valid, then the matter has to go back to the file of the CIT(A) for deciding the same on merit. 5. We have considered the rival submissions on either side and also perused the material available on record. Admittedly, the Assessing Officer reopened the assessment after expiry of four years. Prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer has not formed any opinion with regard to this issue. When the Assessing Officer has not formed any opinion, it cannot be said that there was a change of opinion as found by the CIT(A). In the case before the Apex Court in Kelvinator of India Ltd (supra), the Assessing Officer has taken one of the possible views, therefore, the Apex Court found that once a view was taken it cannot be changed by the Assessing Officer by reopening the assessment. In this case, it is not a case of change of opinion at all. The fact remains that the Assessing Officer has not taken any view in the original assessment, therefore, there is no question of any change of opinion. This Tribunal is of the considered opinion that the Assessing Officer has rightly reopened the assessment after expiry of four years since there was a failure on the part of the assessee in disclosing fully and truly all the material facts relevant for completing the assessment. Therefore, the CIT(A) is not correct in holding that reopening of assessment is not valid. 8. The next contention of the assessee is that the CIT(A) has not considered the issue on merit, therefore, in case the reopening of assessment is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the containers taken on lease by the assessee might have reached Indian territory at one point of time, therefore, it cannot be said that the foreign company has not rendered any service in India. Moreover, no material was produced before the Assessing Officer and the CIT(A), therefore, the CIT(A) found that the payment of ₹ 3,78,342/- made to M/s ABC Containers Pvt. Ltd. Colombo, has to be treated as deemed income accrued in India u/s 9 of the Act and the assessee is liable to deduct tax u/s 195 of the Act. Since there was a failure on the part of the assessee to deduct tax u/s 195 of the Act, the Assessing Officer has rightly disallowed the payment made by the assessee u/s 40(a)(i) of the Act. 14. We have considered the rival submissions on either side and also perused the material available on record. The claim of the assessee is that the assessee has taken container on lease and used the same for his leasing business. The copies of the agreement entered into between the assessee and M/s ABC Containers Pvt. Ltd. Colombo, for taking containers on lease or the services to be provided by M/s ABC Containers Pvt. Ltd. Colombo, are not furnished either before the lower authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on lease from M/s Crono Containers Ltd, and in turn leases out the same to various customers. Referring to Article 9 of Double Taxation Avoidance Agreement (DTAA) between India and United Kingdom, the ld. Counsel submitted that in view of Article 9, in respect of income arising out of leasing of containers is liable for taxation in the contracting State, therefore, the income of M/s Crono Containers Ltd is liable to be taxed only in United Kingdom. Hence, the assessee is not liable to deduct tax u/s 195 of the Act. Even otherwise, the ld. Counsel submitted that no services were rendered in India by the nonresident company, therefore, the income of the non-resident company is not taxable in India, hence, the assessee is not liable to deduct tax u/s 195 of the Act. The CIT(A) by placing reliance on the judgment of Apex Court in GE India Technology Centre P. Ltd vs CIT, 327 ITR 456, found that a person making payment to non-resident is not obliged to deduct tax if the same is not taxable in India. Therefore, the CIT(A) has rightly allowed the claim of the assessee. 17. We have considered the rival submissions on either side and also perused the material available on record. We have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the Income-tax Act, 1961, in view of sec. 90(2) of the Act. In view of the DTAA, lease rental received by M/s Crono Containers Ltd, from the assessee is not taxable in India, therefore, there is no liability for the assessee to deduct tax u/s 195 of the Act in view of the judgment of the Apex Court in GE India Technology Centre P. Ltd(supra). Therefore, this Tribunal do not find any infirmity in the order of the CIT(A) and accordingly, the same is confirmed. 19. The next ground of appeal is with regard to disallowance domestication expenses of ₹ 64,66,273/-. 20. Shri P. Radhakrishnan, ld. DR submitted that the assessee claimed domestication expenses of ₹ 1,22,37,909/-. According to the ld. DR, the assessee is not owner of marine containers. Admittedly, the marine containers were taken on lease from M/s Crono Containers Ltd,UK, . According to the ld. DR, these expenses arise provided that the containers are not re-exported within the stipulated time. This expenditure, according to the ld. DR, is capital in nature. The containers will lose its commercial importance unless the assessee incurred expenditure on domestication. The domestication expenses enable the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rental, survey etc. are regular and recurring expenditure therefore, it is in the revenue field. This Tribunal do not find any reason to interfere with the order of the CIT(A). Accordingly, the same is confirmed. 23. In the result, the assessee's appeal I.T.A.No.442/Mds/2011 is partly allowed for statistical purposes and Revenue's appeal I.T.A.No.695/Mds/2011 is dismissed. 24. Now coming to Revenue's appeal I.T.A.No.696/Mds/2011 for assessment year 2006-07, the first ground of appeal is with regard to disallowance made by the Assessing Officer u/s 14A of the Act. 25. We heard ld. DR and ld. Counsel for the assessee. The assessment year under consideration is 2006-07. Rule 8D is not applicable for the year under consideration, therefore, a reasonable estimation has to be made with regard to expenses incurred by the assessee for earning the exempted income. The Assessing Officer estimated the expenditure by applying Rule 8D. However, the CIT(A) found that Rule 8D is applicable from assessment year 2008-09, therefore, it is not applicable for the assessment year under consideration. Accordingly, the CIT(A) restricted the disallowance to 2% of the gross exempted income. It is not in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue expenditure. 29. We have considered the rival submissions on either side and also perused the material available on record. Admittedly, the assessee has paid ₹ 10 lakhs towards premium for keyman insurance policy on the life of the Managing Director Shri Bijoy Poulose. As per the terms and conditions of the insurance policy, to make a claim, the person who is insured should not have more than 51% of the shares in the company. The family member of the keyman should not have more than 70% shares. Therefore, apparently, the terms and conditions of the insurance policy prohibit the assessee-company from making any claim on the death of the Managing Director. As rightly contended by the ld. Counsel, the keyman insurance policy is only to protect the company from adverse financial effects in case of unexpected death of Managing Director. But when the assesseecompany knows very well that no claim could be made on the death of the Managing Director, Shri Bijoy Poulose since he was holding more than 51% of the shares in the company, it is not known how the payment of ₹ 10 lakhs towards premium is going to protect the assessee-company from adverse financial effects in case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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